UK as a tax base country for the branch office establishment

UK as a tax base country for the branch office establishment: overseas companies that want to expand into the UK have two main options. They can either open a branch office, or they can incorporate a subsidiary company in the United Kingdom. Choosing which one can be complicated, and often requires some accounting expertise, but a full consultation at Coddan, where we have access to all relevant experts, can make the process much easier.

A branch office in the UK is required to supply all accounts for itself and its parent company, and will be taxed on the overall profits that the parent attributes to the branch. The overseas parent company will be liable for tax on these same profits in its local jurisdiction, although in many cases, a double taxation treaty will exist between the UK and the state in which the parent company is established. This will ensure that a credit is raised for the UK tax against the foreign taxation.

In contrast, a subsidiary is liable for UK corporation tax on all its profits and income, but the same income and profits will not be subject to tax in the jurisdiction of the parent company. In other words, a subsidiary is treated more like an independently established company.

Recent changes to UK tax law have brought the taxation treatment of branches and subsidiaries more into line with each other than they were before, but there are still quite a few subtle differences that remain. The most likely difference to still be noted by business owners is that when setting up for business, a branch can offset its start-up costs and its initial trading losses against the parent company's profits. This means that the initial costs carried by the branch may well be significantly lower than otherwise.

In contrast, a subsidiary is expected to offset its start-up costs against future UK profit. As you can see, there are many potholes in the road to deciding what type of company to use when establishing a UK base for an already profitable overseas company, but with the experts at Coddan, you can guarantee that you will make the right decision.

Call our team on +44(0) 207 935 5171 (landline) or 0330 808 0089 for a full consultation to help you decide which type of foreign company to open in the UK.